The Bank of Japan unexpectedly expanded its asset-purchase fund by ¥10 trillion on Wednesday, seeking to counter an increasing danger of contraction.
The program, in which the BOJ buys mainly government bonds, was enlarged to ¥55 trillion in a unanimous decision by the Policy Board. A separate fund that extends credit to banks was held at ¥25 trillion.
Stocks in Tokyo jumped and the yen fell after the decision, which was forecast by only five of 21 analysts surveyed by Bloomberg News. With the move, the BOJ joined counterparts from the U.S. Federal Reserve to the European Central Bank in taking steps to address risks to growth five years after the U.S. mortgage meltdown derailed the global economy.
“Further easing is still possible this year because the BOJ is emphasizing uncertainties in its outlook,” said Masamichi Adachi, an economist at JPMorgan Securities.
The BOJ kept its benchmark interest rate between zero and 0.1 percent and monthly bond purchases at ¥1.8 trillion. Its main policy tool has been purchasing financial securities ranging from government debt to exchange-traded funds to bolster growth.
The BOJ downgraded its economic assessment, saying growth has “come to a pause” while overseas economies have moved “somewhat deeper into a deceleration phase.”
Finance Minister June Azumi said the scale of the easing was “surprising.”
The ¥10 trillion increase is made up of ¥5 trillion in government bonds and ¥5 trillion in treasury bills. The BOJ removed minimum bidding yields for purchases of government and corporate bonds after the bank failed to secure targeted amounts at some of its buying operations. It pushed back the completion of purchases under the asset program to December 2013 from June 2013.
JPMorgan Securities, Credit Suisse Group AG and BNP Paribas expect the economy to contract this quarter after it slowed to a 0.7 percent annual pace in the three months ended June 30 after expanding 5.3 percent in the January-March quarter.
Economic outlook grim
Confidence in Japan’s economic outlook has worsened for the sixth straight month, according to a survey conducted by Bank of America Merrill Lynch.
“Japan is the clear underweight among global investors,” said John Bilton, European investment strategist at Bank of America Merrill Lynch Global Research, in a report released Tuesday.
A net 4 percent of investors now expect a weaker Japanese economy over the next 12 months, the worst reading since early 2009.
The survey showed that 68 percent of investors believe the yen is “overvalued,” which makes further equity upsides harder.
The outlook for Japanese corporate earnings also continued to deteriorate, logging the worst reading in seven months as 14 percent of global investors deemed earnings unfavorable.
A record of 48 percent of investors think Japanese monetary policy is currently too restrictive given the expectations of growth and earnings slowdown.
The survey showed 73 percent of investors expect Europe to be in recession over the next 12 months but are also very positive about the promise of market intervention by European Central Bank President Mario Draghi, which has made its debt crisis a “lower” tail risk than the U.S. fiscal cliff.
But investors are still concerned about the effect on inflation from quantitative easing by central banks in the U.S. and Europe.